The
purpose of the Lehman Brothers Holdings Inc. Employee Incentive Plan (the
“Plan”) is to strengthen Lehman Brothers Holdings Inc. (the “Company”) by
providing selected employees of the Company with the opportunity to acquire a
proprietary and vested interest in the growth and performance of the Company,
thus generating an increased incentive to contribute to the Company’s future
success and prosperity, enhancing the value of the Company for the benefit of
stockholders, and enhancing the Company’s ability to attract and retain
individuals of exceptional talent.

The
purposes of the Plan are to be achieved through the grant of various types of
stock-based awards.

SECTION 2
— DEFINITIONS

For
purposes of the Plan, the capitalized terms shall have the meanings ascribed to
them in Exhibit A hereof.

SECTION 3
— SHARES SUBJECT TO THE PLAN

(a)Shares of Common Stock which
may be issued under the Plan may be either authorized and unissued
shares of Common Stock or authorized and issued shares of Common Stock held in
the Company’s treasury, or any combination thereof. Subject to adjustment as
provided in Section 14, the number of shares of Common Stock with respect
to which Awards (whether distributable in shares of Common Stock or in cash)
may be granted under the Plan shall be 246 million shares. The maximum number
of shares of Common Stock available for stock options, stock appreciation
rights or Other Stock-based Awards that may be granted to a Participant during
a calendar year shall not exceed two million.

(b)Notwithstanding the last
sentence of Section 3(a), to the extent that the number of shares of
Common Stock with respect to which Awards may be granted under the Plan to an
individual in any calendar year exceeds the number of shares of Common Stock
with respect to which Awards were granted under the Plan during that calendar
year, such excess shall be available for grant under the Plan in succeeding
calendar years.

(c)In the event that any other
Award subject to repurchase or forfeiture rights is reacquired by the Company
or if any Award is canceled, terminates or expires unexercised (except with
respect to a stock option which terminates on the exercise of a stock
appreciation right) for any reason under the Plan, any Common Stock allocated
in connection with such Award shall thereafter again be available for grant
pursuant to the Plan.

SECTION 4
— ELIGIBILITY

Selected
employees, officers, directors and consultants to the Company and its
Affiliates are eligible to be Participants in the Plan.

SECTION 5
— ADMINISTRATION

The
Plan shall be administered by the Committee, which shall have the power to
select those Participants who shall receive Awards and to determine the terms
of such Awards. As to the selection of, and the terms of Awards granted the
Committee may delegate any or all of its responsibilities to officers or
employees of the Company.

The
Committee’s authority hereunder shall include, without limitation, the
establishment of vesting schedules or exercisability
in installments with respect to Awards. The Committee may, in its sole
discretion, accelerate or waive vesting or exercise periods or the lapse of
restrictions on all or any portion of any Award, or extend the exercisability (including to extend or provide for
post-termination exercisability) of stock options or
stock

appreciation rights; provided that such exercisability shall not extend past ten years from the
date of grant of any incentive stock options.

Subject
to the provisions of the Plan, the Committee shall be authorized to interpret
the Plan, to establish, amend and rescind any rules and regulations relating to
the Plan, to determine the terms and provisions of any agreements entered into
hereunder, and to make all other determinations necessary or advisable for the
administration of the Plan. The Committee may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or in any Award in the manner
and to the extent it shall deem desirable to carry the Plan or any such Award
into effect. The determinations of the Committee in the administration of the
Plan, as described herein, shall be final and conclusive.

The
validity, construction and effect of the Plan and any rules and regulations
relating to the Plan shall be determined in accordance with the laws of the
State of Delaware
and applicable Federal law.

SECTION 6
— STOCK OPTIONS

(a)Any stock options granted
under the Plan shall be in such form as the Committee may from time to time
approve and shall be subject to the terms and conditions provided herein and
such additional terms and conditions not inconsistent with the terms of the
Plan as the Committee shall deem desirable.

(b)Stock options may be granted
to any Participant. Each grant of stock options shall specify whether the
underlying options are intended to be incentive stock options or non-incentive
stock options. In the case of incentive stock options, the terms and conditions
of such grants shall be subject to and comply with such requirements as may be
prescribed by Section 422(b) of the Code, as from time to time amended,
and any implementing regulations, including, but not limited to, the requirement
that such stock options are exercisable during the Participant’s lifetime only
by such Participant. The Committee shall establish the option price at the time
each stock option is granted, which price shall not be less than 100 percent of
the Fair Market Value of the Common Stock on the date of grant.

(c)No stock options may be
exercisable later than ten years after their date of grant. The option price of
each share of Common Stock as to which a stock option is exercised shall be
paid in full at the time of such exercise or as otherwise permitted by the
Committee. Such payment may be made at the sole discretion of the Committee,
pursuant to and in accordance with criteria and guidelines established by the
Committee (which criteria and guidelines may be different for executive
officers and for other Participants), as the same may be modified from time to
time, (i) in cash (in any form of currency acceptable
to the Committee), (ii) by tender of shares of Common Stock already owned by
the Participant, valued at Fair Market Value as of the date of exercise, (iii)
if authorized by the Committee, by withholding pursuant to the election of the
Participant, which election is subject to the disapproval of the Committee,
from those shares that would otherwise be obtained upon exercise of the option
a number of shares having a Fair Market Value equal to the option price, (iv)
if authorized by the Committee, and in combination with services rendered by
the exercising Participant, by delivery of a properly executed exercise notice
together with irrevocable instructions to a securities broker (or, in the case
of pledges, lender) approved by the Company to, (a) sell shares of Common Stock
subject to the option and to deliver promptly to the Company a portion of the
proceeds of such sale transaction on behalf of the exercising Participant to
pay the option price, or (b) pledge shares of Common Stock subject to the
option to a margin account maintained with such broker or lender, as security
for a loan, and such broker or lender, pursuant to irrevocable instructions,
delivers to the Company the loan proceeds, at the time of exercise to pay the
option price, (v) by any combination of (i), (ii),
(iii) or (iv) above or (vi) by other means that the Committee deems
appropriate.

(d)A stock option holder may,
in the discretion of the Committee, have the right to surrender a stock option
or any portion thereof to the Company within 30 days following a Change in
Control and to receive from the Company in exchange therefor
a cash payment in an amount equal to (a) the number of unexercised shares of
Common Stock under the option which are being surrendered multiplied by (b) the
excess of (i) the greater of (A) the highest price
per share of Common Stock paid in connection with the Change in Control or (B)
the highest Fair Market Value per share of Common Stock in the 90-day period
preceding such Change in Control, over (ii) the purchase price of the option as
set forth in the underlying option agreement (the foregoing, a “Limited SAR”).

2

SECTION 7
— STOCK APPRECIATION RIGHTS

(a)Stock appreciation rights
may be granted independent of any stock option or in conjunction with all or
any part of any stock option granted under the Plan, either at the same time as
the stock option is granted or at any later time during the term of the option.
Stock appreciation rights shall be subject to such terms and conditions as
determined by the Committee, not inconsistent with the provisions of the Plan.

(b)Upon exercise, a stock
appreciation right shall entitle the Participant to receive from the Company an
amount equal to the excess of the Fair Market Value of a share of Common Stock
on the date of exercise of the stock appreciation right over the per share
grant or option price, as applicable (or such lesser amount as the Committee
may determine at the time of grant), multiplied by the number of shares of
Common Stock with respect to which the stock appreciation right is exercised.
Upon the exercise of a stock appreciation right granted in connection with a
stock option, the stock option shall be canceled to the extent of the number of
shares as to which the stock appreciation right is exercised, and upon the
exercise of a stock option granted in connection with a stock appreciation
right or the surrender of such stock option, the stock appreciation right shall
be canceled to the extent of the number of shares as to which the stock option
is exercised or surrendered. The Committee shall determine whether the stock
appreciation right shall be settled in cash, Common Stock or a combination of
cash and Common Stock.

(c)A holder of a stock
appreciation right may, in the discretion of the Committee, have the right to
surrender the stock appreciation right or any portion thereof to the Company
within 30 days following a Change in Control and to receive from the Company in
exchange therefor a cash payment in an amount equal
to (a) the number of shares of Common Stock under the stock appreciation right
which are being exercised, multiplied by (b) the excess of (i)
the greater of (A) the highest price per share of Common Stock paid in
connection with the Change in Control or (B) the highest Fair Market Value per
share of Common Stock in the 90 day period preceding such Change in Control,
over (ii) the per share grant price of the stock appreciation right as set
forth in the underlying agreement.

SECTION 8
— OTHER STOCK-BASED AWARDS

(a)Other Awards of Common Stock
and Awards that are valued in whole or in part by reference to, or otherwise
based on, the Fair Market Value of Common Stock (all such Awards being referred
to herein as “Other Stock-based Awards”), may be granted under the Plan in the
discretion of the Committee. Other Stock-based Awards shall be in such form as
the Committee shall determine, including without limitation, (i) the right to purchase shares of Common Stock, (ii)
shares of Common Stock subject to restrictions on transfer until the completion
of a specified period of service, the occurrence of an event or the attainment
of performance objectives, each as specified by the Committee, and (iii) shares
of Common Stock issuable upon the completion of a
specified period of service, the occurrence of an event or the attainment of
performance objectives, each as specified by the Committee. Other Stock-based
Awards may be granted alone or in addition to any other Awards made under the
Plan. All references in the preceding sentence to “specified period of
service,” in the case of Other Stock-based Awards which (i)
are not in lieu of cash compensation to employees generally, (ii) are not paid
to recruit a new employee in an amount of less than 5% of the total awards
available for grant under the Plan or (iii) are not subject to the attainment
of performance objectives, shall provide that vesting, restrictions on transfer
or some other comparable restriction which incents
continued performance of the recipient, will be for a period of not less than
three years (although vesting or lapsing may occur in tranches
over the three years), unless there is a Change in Control or the recipient
retires, becomes disabled or dies. Subject to the provisions of the Plan, the Committee
shall have sole and absolute discretion to determine to whom and when such
Other Stock-based Awards will be made, the number of shares of Common Stock to
be awarded under (or otherwise related to) such Other Stock-based Awards and
all other terms and conditions of such Awards. The Committee shall determine
whether Other Stock-based Awards shall be settled in cash, Common Stock or a
combination of cash and Common Stock.

(b)With respect to any
restricted stock units granted under the Plan, the obligations of the Company
or any Subsidiary are limited solely to the delivery of shares of Common Stock
on the date when such shares of Common Stock are due to be delivered under each
Agreement, and in no event shall the Company or any Subsidiary become obligated
to pay cash in respect of such obligation (except that the Company or any
Subsidiary may pay to

3

Participants
amounts in cash in respect of a restricted stock unit equal to cash dividends
paid to a holder of shares of Common Stock, for fractional shares or for any
amounts payable in cash upon the occurrence of a Change in Control).

SECTION 9
— DIVIDENDS, EQUIVALENTS AND VOTING RIGHTS

Awards
other than stock options and stock appreciation rights may, at the discretion
of the Committee, provide the Participant with dividends or dividend
equivalents and voting rights prior to either vesting or earnout.

SECTION 10
— AWARD AGREEMENTS

Each
Award under the Plan shall be evidenced by an agreement setting forth the terms
and conditions, not inconsistent with the provisions of the Plan, as determined
by the Committee, which shall apply to such Award.

SECTION 11
— WITHHOLDING

The
Company shall have the right to deduct from all amounts paid to any Participant
in cash (whether under this Plan or otherwise) any taxes required by law to be
withheld therefrom. In the case of payments of Awards
in the form of Common Stock, at the Committee’s discretion, the Participant may
be required to pay to the Company the amount of any taxes required to be
withheld with respect to such Common Stock, or, in lieu thereof, the Company
shall have the right to retain the number of shares of Common Stock the Fair
Market Value of which equals the amount required to be withheld. Without
limiting the foregoing, the Committee may, in its discretion and subject to
such conditions as it shall impose, permit share withholding to be done at the
Participant’s election.

SECTION 12
— NON-TRANSFERABILITY

No
Award shall be assignable or transferable, and no right or interest of any
Participant in any Award shall be subject to any lien, obligation or liability
of the Participant, except by will, the laws of descent and distribution, or as
otherwise set forth in the Award agreement.

SECTION 13
— NO RIGHT TO EMPLOYMENT OR CONTINUED PARTICIPATION IN PLAN/NO RIGHTS AS
STOCKHOLDERS

(a)No person shall have any
claim or right to the grant of an Award, and the grant
of an Award shall not be construed as giving a Participant the right to be
retained in the employ of the Company or to be eligible for any subsequent
Awards. Further, the Company expressly reserves the right at any time to
dismiss a Participant free from any liability or any claim under the Plan,
except as provided herein or in any agreement entered into hereunder.

(b)The grant of an Award shall
not be construed as giving a Participant the rights of a stockholder of Common
Stock unless and until shares of Common Stock have been issued to Participants
pursuant to Awards hereunder.

SECTION 14
— ADJUSTMENT OF AND CHANGES IN COMMON STOCK

In
the event of any change in the outstanding shares of Common Stock by reason of
any Common Stock dividend or split, recapitalization, merger, consolidation,
spin-off, combination or exchange of shares or other corporate exchange, or any
distribution to stockholders of Common Stock other than regular cash dividends,
the Committee shall make a substitution or adjustment to the number or kind of
shares of Common Stock or other securities issued or reserved for issuance
pursuant to the Plan, and to outstanding Awards, as well as the option price or
other affected terms of such Awards as in its judgment shall be necessary to
preserve the Participant’s rights substantially proportionate to the rights
existing prior to such event.

Unless
otherwise provided in an award agreement, after a merger of one or more
corporations into the Company or after a consolidation of the Company and one
or more corporations (a “Merger Event”) in which the Company shall be the
surviving or resulting corporation, an Award holder shall, where applicable, at
the same cost, be entitled upon the exercise of an Award, to receive (subject
to any action required by stockholders) such securities of the surviving or
resulting corporation as shall be equivalent to the shares underlying such
Award as nearly as practicable

4

to the nearest whole number and class of
shares of stock or other securities.

Unless
otherwise provided in an award agreement, if the Company enters into any
agreement with respect to any transaction which would, if consummated, result
in a Merger Event in which the Company will not be the surviving corporation,
the Committee in its sole discretion and without liability to any person shall
determine what actions shall be taken with respect to outstanding Awards, if
any, including, without limitation, the payment of a cash amount in exchange
for the cancellation of an Award or the requiring of the issuance of substitute
Awards that will substantially preserve the value, rights and benefits of any
affected Awards previously granted hereunder as of the date of the consummation
of the Merger Event.

SECTION 15
— AMENDMENT

The
Committee or the Board may amend, suspend or terminate the Plan or any portion
hereof at any time.

SECTION 16
— UNFUNDED STATUS OF PLAN

The
Plan is intended to constitute an “unfunded” plan for long-term incentive
compensation. With respect to any payments not yet made to a Participant,
including any Participant optionee, by the Company,
nothing herein contained shall give any Participant any rights that are greater
than those of a general creditor of the Company. In its sole discretion, the
Committee may authorize the creation of trusts or other arrangements to meet
the obligations created under the Plan to deliver Common Stock or payments in
lieu thereof or with respect to options, stock appreciation rights and other
Awards under the Plan; provided, however, that the existence of such trusts or
other arrangements is consistent with the unfunded status of the Plan.

SECTION 17
— EFFECTIVE DATE

This
Plan shall be effective on April 5, 1995. No Awards may be granted under the
Plan on or after April 30, 2006.

5

EXHIBIT A

(a)“Affiliate” shall mean any
entity designated by the Committee in which the Company pr an Affiliate has an
interest.

(b)“Award” shall mean any type
of stock-based award granted pursuant to the Plan.

(c)“Board” shall mean the Board
of Directors of the Company; provided, however, that any action taken by a duly
authorized committee of the Board within the scope of authority delegated to such
committee by the Board shall be considered an action of the Board for purposes
of this Plan.

(d)“Change in Control” shall
mean the occurrence during the term of the Plan of:

a)The commencement (within the
meaning of Rule 14d-2 under the Securities Exchange Act of 1934 (the
“Exchange Act”)) of a tender offer for more than 20% of the Company’s
outstanding shares of capital stock having ordinary voting power in the
election of directors (the “Voting Securities”);

b)An acquisition (other than directly from
the Company) of any voting securities of the Company by any “Person” (as the
term person is used for purposes of Section 13(d) or 14(d) of the Exchange
Act) immediately after which such Person has “Beneficial Ownership” (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more
of the combined voting power of the Company’s then outstanding Voting
Securities; provided, however, in determining whether a Change in Control has
occurred, Voting Securities which are acquired in a “Non-Control Acquisition”
(as hereinafter defined) shall not constitute an acquisition which would cause
a Change in Control. A “Non-Control Acquisition” shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part
thereof or a trustee thereof acting solely in its capacity as trustee)
maintained by (A) the Company or (B) any corporation or other Person of which a
majority of its voting power or its voting equity securities or equity interest
is owned, directly or indirectly, by the Company (for purposes of this
definition, a “Subsidiary”), (ii) the Company or its Subsidiaries, or (iii) any
Person who files in connection with such acquisition a Schedule 13D which
expressly disclaims any intention to seek control of the Company and does not
expressly reserve the right to seek such control; provided, however, that any
amendment to such statement of intent which either indicates an intention or
reserves the right to seek control shall be deemed an “acquisition” of the
securities of the Company reported in such filing as beneficially owned by such
Person for purposes of this paragraph (b);

c)The individuals who, as of
the effective date of the 1994 initial public trading in Company shares, are
members of the Board (the “Incumbent Board”), ceasing for any reason to
constitute at least a majority of the members of the Board; provided, however,
that if the election, or nomination for election by the Company’s common
stockholders, of any new director was approved by a vote of at least two-thirds
of the Incumbent Board, such new director shall, for purposes of this Plan, be
considered as a member of the Incumbent Board; provided further, however, that
no individual shall be considered a member of the Incumbent Board if such
individual initially assumed office as a result of either an actual or
threatened “Election Contest” (as described in Rule 14a-11 promulgated
under the Exchange Act or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board (a “Proxy Contest”)
including by reason of any agreement intended to avoid or settle any Election
Contest or Proxy Contest; or

d)Approval by stockholders of
the Company of:

(i)A merger, consolidation or
reorganization involving the Company, unless such merger, consolidation or
reorganization is a “Non-Control Transaction”; i.e., meets each of the
requirements described in (A), (B) and (C) below:

(A)the stockholders of the
Company, immediately before such merger, consolidation or reorganization, own,
directly or indirectly, immediately following such merger, consolidation or
reorganization, at least the Applicable Minimum Percentage (as defined below)of the combined voting power of the outstanding voting securities of
the corporation resulting from such merger or consolidation or reorganization
(the “Surviving

A-1

Corporation”)
in substantially the same proportion as their ownership of the Voting
Securities immediately before such merger, consolidation or reorganization;

(B)the individuals who were
members of the Incumbent Board immediately prior to the execution of the agreement
providing for such merger, consolidation or reorganization constitute at least
the Applicable Minimum Proportion (as defined below) of the members of the
board of directors of the Surviving Corporation immediately following the
consummation of such merger, consolidation or reorganization; and

(C)no Person other than the
Company, any Subsidiary, any employee benefit plan (or any trust forming a part
thereof or a trustee thereof acting solely in its capacity as trustee)
maintained by the Company, the Surviving Corporation, or any Subsidiary, or any
Person who, immediately prior to such merger, consolidation or reorganization
had Beneficial Ownership of 20% or more of the then outstanding Voting
Securities has Beneficial Ownership of 20% or more of the combined voting power
of the Surviving Corporation’s then outstanding voting securities immediately
following the consummation of such merger, consolidation or reorganization;

(ii)A complete liquidation or
dissolution of the Company; or

(iii)An agreement for the sale or other
disposition of all or substantially all of the assets of the Company to any
Person (other than a transfer to a Subsidiary).

With
respect to paragraph (d)(i) above, “Applicable
Minimum Percentage” means (1) eighty percent (80%) with respect to Awards made
prior to November 14, 2000, and (2) fifty percent (50%) with respect to Awards
made on or after November 14, 2000; and “Applicable Minimum Proportion” means
(1) two-thirds with respect to Awards made prior to November 14, 2000, and (2)
a majority with respect to Awards made on or after November 14, 2000.

Notwithstanding
the foregoing, a Change in Control shall not be deemed to occur solely because
any Person (the “Subject Person”) acquired Beneficial Ownership of more than
the permitted amount of the outstanding Voting Securities as a result of the
acquisition of Voting Securities by the Company which, by reducing the number
of Voting Securities outstanding, increases the proportional number of shares
Beneficially Owned by the Subject Persons, provided that if a Change in Control
would occur (but for the operation of this sentence) as a result of the
acquisition of Voting Securities by the Company, and thereafter such Beneficial
Owner acquires any additional Voting Securities which increases the percentage
of the then outstanding Voting Securities Beneficially Owned by the Subject
Person, then a Change in Control shall occur.

(e)“Code” shall mean the
Internal Revenue Code of 1986, as from time to time amended.

(f)“Committee” shall mean the
Compensation and Benefits Committee of the Company.

(g)“Common Stock” shall mean
the common stock of the Company, $.10 par value.

(h)“Company” shall mean Lehman
Brothers Holdings Inc. and, except as otherwise specified in this Plan in a
particular context, any successor thereto, whether by merger, consolidation,
purchase of substantially all its assets or otherwise.

(i)“Fair Market Value” on any
date means the closing price of the shares on such date on the principal
national securities exchange on which such shares are listed or admitted to
trading (or, if such exchange is not open on such date, the immediately preceding
date on which such exchange is open), the arithmetic mean of the per share
closing bid price and per share closing asked price on such date as quoted on
the National Association of Securities Dealers Automated Quotation System, or
such other market in which such prices are regularly quoted, or, if there have
been no published bid or asked quotations with respect to such shares on such
date, the Fair Market Value shall be the value established by the Committee in
good faith and, in the case of an incentive stock option, in accordance with
Section 422 of the Code.

(j)“Other Stock-based Award”
shall mean any of those Awards described in Section 8 hereof.

A-2

(k)“Participant” shall mean an
employee, officer, director or consultant of the Company.

(l)“Subsidiary” shall mean any
corporation which at the time qualifies as a subsidiary of the Company under
the definition of “subsidiary corporation” in
Section 424(f) of the Code, as amended from time to time.